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Old 12-04-2020, 07:01 PM   #41
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I sure hope I do.
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Old 12-04-2020, 07:07 PM   #42
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I sure hope I do.
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Old 12-04-2020, 08:56 PM   #43
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I sure hope I do [pay IRMAA for the rest of my life].
Yeah, that's us. We are converting aggressively now in our late 50s and early 60s to try avoiding fourth tier once we hit our 70s (and, maybe, perhaps, once one of us dies).

No complaints. Converting Roth to top of 24% bracket gives us an 18.7% effective rate--far better than what we put the money in at, even with IRMAA....
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Old 12-04-2020, 09:12 PM   #44
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Yeah, that's us. We are converting aggressively now in our late 50s and early 60s to try avoiding fourth tier once we hit our 70s (and, maybe, perhaps, once one of us dies).

No complaints. Converting Roth to top of 24% bracket gives us an 18.7% effective rate--far better than what we put the money in at, even with IRMAA....

I've always felt this way; If I'm paying big taxes, it's because I'm making a boatload of money.
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Old 12-04-2020, 09:18 PM   #45
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Its not any deep, dark secret that IRMAA is based on your tax return income and that tax return income includes any Roth conversions. It's not like they changed the rules on you.

I never said they changed the rules on me. But in reality, they did when they implemented IRMAA on monies already put into 401K and IRAs. Not that they can't change the rules.

And you didn't defer the tax as you claim... the only way you can defer tax is by deferring income... that's why it is called an income tax. You deferred the income (being recognized as such in your tax return) which in turn deferred the tax.

I see nothing on my tax forms that says "deferred income" as it relates to 401k's. You call it what you will. I will do the same. And really? A facepalm? I do know what income tax means.

FICA income and the timing of FICA taxes have nothing to do with it... never had and never will.

FICA taxes has a lot to do with it IMO. That says to me, they (Medicare) acknowledged the income was made in the year it was paid. not in the year of a Roth conversion. Notice I never said income taxes were paid on that money back then.
See my comments in orange above.
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Old 12-04-2020, 10:56 PM   #46
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Oh grow up and quit your whining.
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Old 12-05-2020, 07:18 AM   #47
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A one-year 40% return as never happened that I can find... at least for calendar years.
Yes, my choice of words was more dramatic than accurate if you ignore significant figures, but per the source thebalance.com from 1990 to 2019 re S&P500 index there were at least 6 years around 30% and 1995 was listed as 37.2%.
(31.5 1989, 30.5 1991, 37.2 1995, 33.0 1997, 28.58 1998, 28.68 2003, 31.49 2019)

I started engineering when slide rules were still used.. You added or subtracted logarithms and decimal places were kept in your head. We spent a bit of time on significant figures. The logic was a decimal point showed you how accurate the measurement really was. IE did Noah measure his Ark with the distance from his elbow to his fingertip or some sort of digital laser accurate to millimeters. They stressed this stuff in chemistry quantitative analysis as well..

37.2 to me means 37.1 to 37.3. 40 means 30 to 50 while 40. means 39 to 41. 40.0 means 39.9 to 40.1. This type of logic conveyed your confidence in the accuracy of the number and kept bridges from falling down. I simplified the explanation above some by omitting rounding effect.

And while I can sort of defend what I said, the truth was I was lazy and did not look up the highest year. And you nicely clarified the issue that the number was not digitally accurate.

Even one year at 37.2% and I am still golden re the taxes I paid. Living through two 30% gains and I am ecstatic. Also note there are 6 down years listed from 1986 to 2019 re S&P500 index although only one really bad in 2008 of -37.00%.

Just an analog guy living in a digital world.. lol
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Old 12-05-2020, 08:27 AM   #48
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See my comments in orange above.
IRMAA is not an additional Medicare tax, but instead an increase in premiums for higher income people.

https://www.medicare.gov/your-medica...s/part-b-costs

Quote:
2020

The standard Part B premium amount in 2020 is $144.60. Most people pay the standard Part B premium amount. If your modified adjusted gross income as reported on your IRS tax return from 2 years ago is above a certain amount, you'll pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium.
Your early argument that Roth conversions shouldn't count towards IRMAA income has problems. One could game the system easily by converting an amount to a Roth, then withdrawing from the Roth.
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Old 12-05-2020, 08:32 AM   #49
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My biggest issue with the whole deferred taxes and taking distributions while retired is that I listened to the investment pundits back when Roths were first implemented. The sage advice at the time was if you were over 50 or so it didn't make sense to do Roths and it was best to just keep socking that money in traditional IRAs or 401k. I don't think IRMAA was part of the equation back then and I doubt if it is today for the newer generation of investment pundits. If my current income from SS and pensions is just under $87k and I withdraw enough to put my income just under $163k, I will pay 24% federal tax, 4.63% Colorado state income tax, and 4.45% IRMAA tax for a total of 33% taxes on that $76k distribution. The IRMAA tax calculation (an additional $282/mo in 2022 for Part B and Part D) uses 2020 numbers but will actually use 2022 numbers so they could be different. The moral of this story is do your homework and don't take the pundit's word for it. In future years I will add enough to my RMD to put my income just under $163k for as much income as I can get while in that bracket.
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Old 12-05-2020, 08:36 AM   #50
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I always used TIRA instead of any Roth, but also was earning too much dough to do a Roth anyway.
Potential IRMAA is at least 12 years away, but calculated that it could be close either way for the surcharge at least at first.
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Old 12-05-2020, 08:41 AM   #51
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IRMAA is not an additional Medicare tax, but instead an increase in premiums for higher income people.
It is exactly that. Another way to say it is IRMAA is a reduction in the Medicare premium subsidy for higher income taxpayers.

Edit to add - even SSA describes it in those terms https://www.ssa.gov/OP_Home/cfr20/418/418-1005.htm
Quote:
The purpose of the income-related monthly adjustment amount is to reduce the Federal subsidy of the Medicare Part B program for beneficiaries with modified adjusted gross income above an established threshold. These beneficiaries will pay a greater share of actual program costs. Medicare Part B premiums paid by beneficiaries cover approximately 25 percent of total Medicare Part B program costs and the remaining 75 percent of program costs are subsidized by the Federal Government's contributions to the Federal Supplementary Medical Insurance Trust Fund. The reduction in the Medicare Part B premium subsidy results in an increase in the total amount that affected beneficiaries pay for Medicare Part B coverage.
Even taxpayers with incomes over $750k (joint), the highest bracket, receive a subsidy.
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Old 12-05-2020, 09:19 AM   #52
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My biggest issue with the whole deferred taxes and taking distributions while retired is that I listened to the investment pundits back when Roths were first implemented. The sage advice at the time was if you were over 50 or so it didn't make sense to do Roths and it was best to just keep socking that money in traditional IRAs or 401k. I don't think IRMAA was part of the equation back then and I doubt if it is today for the newer generation of investment pundits. If my current income from SS and pensions is just under $87k and I withdraw enough to put my income just under $163k, I will pay 24% federal tax, 4.63% Colorado state income tax, and 4.45% IRMAA tax for a total of 33% taxes on that $76k distribution. The IRMAA tax calculation (an additional $282/mo in 2022 for Part B and Part D) uses 2020 numbers but will actually use 2022 numbers so they could be different. The moral of this story is do your homework and don't take the pundit's word for it. In future years I will add enough to my RMD to put my income just under $163k for as much income as I can get while in that bracket.
Edit: I left out the Part D surcharge, so Hermit's math is correct. Math check, assuming you are single, but going from just under $87K to just under $163K gives you an IRMAA surcharge of $231.40/month ($376 - $144.60), which is $2776.80 per year, divided by your $76K distribution is 3.65%, not 4.45%.

I agree with your conclusion, to do your homework and figure out what works for you. I've seen some good advice here on e-r.com that you should defer to any company matching level, and then consider where to put the rest of what you're saving for retirement. Don't automatically defer to the max. That's not the message that most of the public is getting.

Have you looked at whether you saved more than 33% when you deferred the income? It's not as hard to swallow a 33% conversion tax if you saved more than that earlier.

Like Dtail's said after yours, Roth contributions weren't an option for me, and a backdoor Roth would've had a steeper tax rate.

I think people overlook investing in taxable accounts. You'll get hit with some dividend income along the way, hopefully qualified. When you sell, you only get hit with 15% (sometimes 0%) federal + state + the possible IRMAA surcharge but you may be able to control that.

The other thing that some overlook is being aggressive in Roth conversions early. Often people resist, because they can't stomach the thought of paying taxes before they need to, but then get hit with IRMAA and don't like that either.

OTOH, in most cases it probably doesn't make sense to go over the ACA subsidy cliff before 65 just to avoid IRMAA. ACA has these minor (~10%) reduction in subsidy as you approach the cliff, then WHAM! it's all gone. IRMAA cliffs are more like steps. At most you pay a little over $1000 if you go $1 over one of the IRMAA limits.
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Old 12-05-2020, 09:19 AM   #53
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My biggest issue with the whole deferred taxes and taking distributions while retired is that I listened to the investment pundits back when Roths were first implemented. The sage advice at the time was if you were over 50 or so it didn't make sense to do Roths and it was best to just keep socking that money in traditional IRAs or 401k. I don't think IRMAA was part of the equation back then and I doubt if it is today for the newer generation of investment pundits. If my current income from SS and pensions is just under $87k and I withdraw enough to put my income just under $163k, I will pay 24% federal tax, 4.63% Colorado state income tax, and 4.45% IRMAA tax for a total of 33% taxes on that $76k distribution. The IRMAA tax calculation (an additional $282/mo in 2022 for Part B and Part D) uses 2020 numbers but will actually use 2022 numbers so they could be different. The moral of this story is do your homework and don't take the pundit's word for it. In future years I will add enough to my RMD to put my income just under $163k for as much income as I can get while in that bracket.
Hermit, tax-deferred probably still made sense for you, just a little less so because of IRMAA.

I'm guessing that your marginal federal tax rate was probably 28% or 31% or even higher when you deferred that income so you're saving at least 4% or 9% or perhaps more... but those savings are offset by the IRMAA premium increase that works out to 4.45%. So if you marginal tax bracket was 31% when you deferred then you saved 2.55% (31% - 24% - 4.45%) and if your marginal tax bracket was 28%when you deferred it cost you 0.45% (28% - 24% - 4.45%).

Either way, since the benefits are less than you expected when you deferred that income it means that you have had more financial success than you anticipated when you decided to defer that income. That's good, right?

State income tax is probably a push... IOW what you saved by deferring income is the same as what you pay now.
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Old 12-05-2020, 09:25 AM   #54
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...The other thing that some overlook is being aggressive in Roth conversions early. Often people resist, because they can't stomach the thought of paying taxes before they need to, but then get hit with IRMAA and don't like that either. ..
Absolutely. When I first retired, I was shocked and overjoyed at the idea of have a federal income tax bill of $0 after ~$50k in tax annually when I was working.

But after giving it more thought I figured out that that low tax income was a golder opportunity to do more Roth conversions at a very low tax cost so I sucked it up, did the Roth conversions and wrote out the checks to the IRS (albeit not happily).
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Old 12-05-2020, 11:58 AM   #55
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Math check, assuming you are single, but going from just under $87K to just under $163K gives you an IRMAA surcharge of $231.40/month ($376 - $144.60), which is $2776.80 per year, divided by your $76K distribution is 3.65%, not 4.45%. ......

That's just for Part B. I think you also need to add in the surcharge for Part D, which is $50.70 per month. Then the sum works out to 4.45% on $76K.
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Old 12-05-2020, 12:01 PM   #56
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That's just for Part B. I think you also need to add in the surcharge for Part D, which is $50.70 per month. Then the sum works out to 4.45% on $76K.
Thanks for the correction. I just went back to cross out that part of my post.
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Old 12-05-2020, 12:46 PM   #57
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You can call IRMAA whatever you want, but in my humble opinion, when money leaves my pocket and goes into the government's pocket, that is a tax. In this case a progressive tax. I paid a lot more into Medicare than most people on Medicare and that is OK. I don't mind the tax as much as the obfuscation. Why not just say old people on Medicare need to pay an additional progressive income tax? Our state government has also gotten on the "No NewTaxes" band wagon by making everything "fees". In the state's case, it is not progressive which really hurts the lower income people.


So far as Roth vs traditional, I was always in the 24% bracket (married, 2 kids) while working. A large portion of my savings is derived from gains. I have never tried to calculate what I would have paid for potential taxable gains but probably less than 24%. My gains are certainly much larger based on the larger pre tax contributions so there is also that to consider. I think I will just have to suck it up and enjoy my posts to the "Blow That Dough" thread.
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Old 12-05-2020, 12:58 PM   #58
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Yeah, that's us. We are converting aggressively now in our late 50s and early 60s to try avoiding fourth tier once we hit our 70s (and, maybe, perhaps, once one of us dies).

No complaints. Converting Roth to top of 24% bracket gives us an 18.7% effective rate--far better than what we put the money in at, even with IRMAA....
IRMAA is an annoying penalty, but I wouldn't let it drive my Roth Conversion strategy, we're maxing to the top of the 22% bracket. I'm paying taxes now voluntarily, and I wish conversions were excluded from MAGI, but I'm not under any illusion that would ever happen.
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Old 12-05-2020, 01:23 PM   #59
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I'm not sure if it woul be successful, but it might be worth a shot to apply and claim that you were over only because you did a withdrawal from retirement accounts to pay off your HELOC and that income will not recur in future years. Only cost would be to fil out the form and send it in. Who knows, you might get a sympathetic examiner.
You can try, but voluntary withdrawals from tax-deferred for whatever reason are not one of the seven life-changing events on SSA-44...
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Old 12-05-2020, 01:33 PM   #60
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I am carefully working at keeping my income under $163k which is a step for IRMAA as well as the break point for the top of the 24% tax bracket for singles. I want to pull some cash out of the traditional IRA so I can add posts to the "Spend That Dough" thread. RMDs are just around the corner so I will be paying IRMAA taxes for the rest of my life.
I'm in a very similar boat and always will be.
That $163k amount indexed upward to $165k for 2021 IRMAA based on 2019 MAGI.

And for what little it matters, top of 24% bracket is based on Taxable Income after deductions, not MAGI.
So we won't be getting into the 32% bracket if we stay in the IRMAA tier <$165K...
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